JF1860: New Investor Buys 30 Units With Other Peoples’ Money with Colin Douthit
Since Colin is still a newer investor who has successfully used OPM to purchase real estate, we’ll hear a lot about how he met investors and convinced them to invest in his real estate deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“If they say they’ll invest anywhere then they are willing to invest in areas that are bad and not guide you properly” – Colin Douthit
Colin Douthit Real Estate Background:
- Real estate investor, general contractor, and property manager
- Owns 70+ doors all acquired in the past 24 months, manages 50+ doors for other real estate investors
- Based in Kansas City, MO
- Say hi to him at colinATatlas.rentals
- Best Ever Book: Bible
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Theo Hicks: Hi, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today I will be speaking with Colin Douthit. Colin, how are you doing today?
Colin Douthit: I’m doing well, how about yourself, Theo?
Theo Hicks: I am doing great, and I am looking forward to our conversation. A little bit about Colin – he is a real estate investor, general contractor and property manager. He currently owns over 70 doors, which was acquired within the past 24 months. I’m looking forward to diving in how you were able to accomplish that… He’s also a property manager and he manages over 50 doors for other real estate investors. Based out of Kansas City, Missouri. You can say hi to him at his email address, firstname.lastname@example.org.
Colin, before we dive into your background, could you tell us a little bit more about your background and what you’re focused on now?
Colin Douthit: Yeah, sure thing. I haven’t been in the real estate game my entire life; I’m kind of new to it. I was actually an engineer by trade, I did project management for construction companies, [unintelligible [00:03:21].25] of engineering school. I decided to kind of split ways with the corporate world, so I started acquiring rental properties. We started buying them because that was the goal, and I had some extra capital; that was kind of the initial seed for it. We had saved up some capital, had a little bit of a life insurance money to get going there.
That really got us through the first 12 months of acquisitions, but things for me really got interesting on the second 12 months – the last 12 months, I would say – because essentially we’ve been able to buy 40 doors with 100% OPM, which has really been huge in our growth, as well as capital preservation.
Along the way, with my construction background, I started to provide my own GC services for rehabbing the rental properties. I couldn’t find people that I could depend on… And then since we were already in the property management space, because I was having to manage all my own doors while we rolled that out as well, I got a property manager onboard who’s helping me out, and we’re servicing outside customers now as well. That’s how we got to where we are at.
Theo Hicks: So let’s go one by one… Let’s talk about the previous 12 months. You mentioned how you had that seed money from your life insurance fund to fund those first 12 months worth of deals, and then after that you were able to raise capital from other people to fund those projects… First, walk us through who these people are, how you found them, and how you presented the opportunities to them and convinced them to come onboard and invest their capital.
Colin Douthit: Yeah, absolutely. I think the whole thing with any business, especially real estate is networking and how you know people, and then just hitting up your friends and family. Honestly, I had some family members that had some capital sitting aside, so what I essentially offered them was a second lien position or personal guarantee, and we used their money for a down payment and our wholesale purchase, or just the whole purchase of the property, depending on how much the property was, and paid them essentially interest-only. We make extra principal payments on that interest-only loan on a monthly basis, and a lot of times we used them for the down payment, which allowed us to leverage that even further.
So we made sure we had plenty of debt coverage on the monthly income that was coming in, and then paid them on a monthly basis as well, with the goal of at year five doing a refinance that should them pay them off completely.
Theo Hicks: Do you mind walking us through how you are presenting these opportunities to them? Are you just calling them on the phone and saying “Hey, I’ve got this deal. Do you want it?” Or is there a more specific process?
Colin Douthit: A little bit. These are people I’m close with – parents, some other family members, some close family friends that we know have money, that do some investments in other real estate, that have some successful businesses, that have some capital they’re looking to deploy… And I’m just always talking about what I’m doing in the real estate space, and “Oh, look at this proformas I’ve put together. Look at this deal.” And they started to see the success and the growth, and with that track record I was then able to say “Hey, let’s go ahead and see if we can work something out. We’re looking to fund this next deal… Do you have an interest? We’ll give you 8% interest-only.” And they’re like “8%? That’s pretty good.” They start penciling the numbers… Like, “Okay, that’s about what I’m getting in the stock market, so I might as well place it with you guys, with a physical asset”, and then they get the whole principal back in five years.
Now, I was just talking to a lot of people, and I didn’t really have to push a hard sell on them too much. We gave them a personal guarantee, and they were pretty excited. People see the stock markets continuing to rise, but they’re also apprehensive that it’s gonna pull back, because there have been some major pullbacks, and they’re like “Man, I’ve lost tens of thousands or a hundred thousand dollars over this last week… I’d rather just place it somewhere I know I’m gonna get the 8%.”
Theo Hicks: Do you ever plan on expanding to — not strangers, but people outside of your current network, like maybe building a brand to attract other investors, or do you just plan on sticking with the people that you already know, just because they have enough capital to fund your deals?
Colin Douthit: I’ve entertained the idea of expanding. I haven’t had to reach that far yet outside my network, to be honest with you. I know that you start running into some — you wanna make sure you’re not playing with the syndication rules, or some of the legal rules, so I don’t wanna try to stray too far into that area without knowing all the rules they play by over there… So I don’t really wanna get in over my head in that department.
Theo Hicks: For those 30-40 doors – it doesn’t have to be an exact number, but approximately how much capital have you raised for those deals total?
Colin Douthit: About 250k-300k. We had a couple big purchases, a number of properties, low class B, high class C properties that we needed to value-add. The price was right, we could get a good down payment going for it, and we were able to be like “Okay, we need $80,000 for the down payment on this chunk of properties”, and we were able to raise that here, and $10,000 there, and $30,000 there, so…
Theo Hicks: Okay. Let’s move on to the second thing you talked about, which is being a general contractor. Did you start this general contracting business just because it was your background and you wanted to save some money, or did you just have issues with the GCs you were using?
Colin Douthit: Really just having a hard time finding people that I could depend on. There were multiple reasons. One was having a hard time finding people that I could depend on; that was a challenge. Trying to pay people on a regular basis, or have to upfront make these large payments sometimes wasn’t always ideal.
Also for the legal protection, if I’ve got a bunch of 1099 guys running around and we have multiple different LLCs set up to protect the different assets – if I have to pay each of them out of this different one, each of those is exposed to a liability if something gets hurt. So if I roll it into the GC and then I can have my general liability insurance through one company, then I don’t have to worry as much about my exposure if I’m hiring the guy to come in and lay some flooring. It’s just some 1099 guy that I know from town, or whatever. But if I am the GC, then I have to worry about that legal liability [unintelligible [00:09:03].08]
Theo Hicks: So instead of hiring a GC to find these subcontractors, you just find them yourself? Or are you actually going in there and doing the stuff yourself?
Colin Douthit: We’ve got a number of guys that work for us full-time now.
Theo Hicks: Okay. And is this something that you just do for your own deals, or do you also provide this service to your property management clients?
Colin Douthit: Yeah, we also provide it to property management clients, and I would say almost — the GC came for two reasons. One – I needed my own guys, because we had so much work, and then B was for the property management side of things. When we’re working with our customers that are property management related, we can provide the maintenance service for them quickly, because we have it all in-house, we don’t have to rely on a third party vendor additionally, which I think we might touch on here in a little bit… Kind of the full-service that we offer to some of the investors as well – it allows us to be a single point of contact for investors, so they don’t have to worry about coordinating work and everything from halfway across the country, or even internationally.
Theo Hicks: Yeah, we’ll transition into property management, but just one more question – have you found that you’ve been able to either do more deals, or offer a higher amount of money on deals just because you know that you are not going to be spending as much money as your competitors because of the fact that you’re keeping all of this renovation in-house, so I’m assuming it’s gonna be less expensive to do these rehabs, compared to someone else who has to hire someone like you to do it for them?
Colin Douthit: Yeah, absolutely. We’ve got a couple guys that are working out there for between $15 and $20 an hour, doing even some grunt labor at $12/hour… We can get that done a lot quicker and a lot cheaper than if we have to pay a GC that’s gonna bill everybody else out at a minimum $35/hour. Then if I can get a guy that I can trust, that can do some of the stuff like plumbing, and the hot water heater, and I can pay him $25/hour for one of my skilled guys, then I’m really gonna save a lot of money in the long-term, over a plumber that’s gonna come in and bill me $65/hour.
Theo Hicks: Would you say that if someone has their own business like you, and they don’t have the construction background, do you think that they could do what you’re doing? Do you think that they could be the GC and find some contractors, or do you recommend they just find a GC and kind of just take those disadvantages, but also benefit from the fact that they’re not gonna fail because they don’t know necessarily what they’re doing?
Colin Douthit: I would probably lean towards the second option, of hiring somebody. My background in construction was purely commercial, so me getting into the residential side was a large learning curve for me. I took a lot of licks trying to figure some of this stuff out, on the estimating and stuff like that, and hitting my head against the door with permits, and everything with the cities, and codes… I do have a knowledge of codes, which has helped me a fair amount, especially if we’ve had to do something structural-related.
Honestly, I would say it’d probably be a safer bet for somebody just to build a relationship with a good GC, that has all the insurance and can do all the permits and everything else like that that you need. It’s been an interesting challenge… And then you don’t have to worry about hiring and keeping employees happy as well.
Theo Hicks: So you mentioned insurance… What are some other things that they recommend investors look at when they’re trying to find a GC? Because obviously, as you mentioned, you’ve had a hard time finding people to depend on, so [unintelligible [00:12:09].15] unless they have that background, specifically residential, and even if it’s commercial, it’s still gonna be tough… If I need to go out and find a GC, behind making sure that they’re insured, what else should I be looking for?
Colin Douthit: References. Get references from other people. Make sure that they are comfortable with the scope of work that you’re asking them to do, and that they’re not overqualified sometimes for what you’re asking them to do. Our focus is solely on long-term buy and hold rental properties. We’ve done some flips, but we really wanna focus on what we know best, which is rental properties.
So if you’ve got a GC out there that’s used to finishing high-end homes, and they’re gonna come in and help you update your rental property that’s $750/month or $900/month, the level of finish and the expense that you’re gonna incur with them is probably gonna be way higher than you need to have for that property.
Theo Hicks: Yeah, I remember when I first got into real estate I was convincing my now wife, then just girlfriend, to buy a property… And she had three contractors come out to quote for a duplex, and one of them was this higher end, and he quoted triple what everyone else did. They were like “We can do this, and –” [unintelligible [00:13:13].13] take a step back… No one’s gonna rent this. They’re gonna rent it, but you’re not gonna make that money back. So making sure they’re not overqualified is good advice.
Let’s talk about your property management company. You were telling me beforehand how you have a turnkey service for people who wanna invest out of state. I personally have had issues with property management companies in the past, and since this interview is not gonna be airing for a long time, hopefully I’m out of the weeds at that point… Because I do have my properties under contract when we’re recording this; hopefully they’re gone by that point… But what’s some advice you have about making sure you find the right property management company for your specific property you’re buying, or specific deal, or specific investment strategy?
Colin Douthit: Make sure first that they’re familiar with the area that you’re gonna be investing in. People can have a wide area that they’re comfortable managing – the whole metropolitan area… Or ask them “Where would you not invest?” Because if they will say “Oh, we’ll just manage anything, anywhere”, then that means they’re also willing to not guide you properly into investing in areas that are bad. If you’re trying to stay out of some low class C, class D neighborhoods that might have a rougher demographic, they’re saying “Yeah, we’ll just go anywhere. We don’t have any exclusions on where we invest.” Then I would be a little concerned there.
I’d also make sure that they can be full-service for you on what they offer. All these programs now, the property management softwares are getting so advanced and so web-based that you can get a really high level of service from the property managers, get all the information that you need to get from them through these web-based applications and reports that they can run… So I’d say make sure that they’re up to date on how they’re doing things.
Theo Hicks: And then what about on an ongoing basis, what are some of the things you recommend investors do to make sure that they’re — obviously, you’re gonna ask them “Are you familiar with this area?” and they say “Oh yeah, of course.” And then ask them “Will you offer full-service?”, they’re like “Yeah, of course.” How do I make sure that that’s actually the case? Specifically on that latter part, which is that they’re full-service, that they’re taking care of maintenance issues quickly, that they’re making sure they’re filling vacancies… What are some things that I can do as an investor to make sure that they are actually doing what they say they were going to do?
Colin Douthit: I would ask for some of the properties that they have under management, maybe go drive by and see a couple of those. I would ask what services they do provide. Are they coordinating the maintenance for you? Are they charging you for that? How often they’re inspecting the units, what are some of the systems they have in place, how do they handle a maintenance call coming in during the day, how do they handle a maintenance call coming in after hours, who answers the phone after hours. Let’s see some pictures of some of the properties that you do have listed right now, and then maybe say “Hey, how long have these properties been on the market? What are your average days of vacancy from when somebody leaves? How long does it take you to get the unit turned over, and then how long is it on the market?”
Theo Hicks: Alright, Colin, what is your best real estate investing advice ever?
Colin Douthit: This was a tough one, I had to think about this one… It’s probably you didn’t lose or you can’t make money on a deal you never had. You can’t lose money on a deal you never had. If you’re under contract to buy something and it falls through, you never made the money and you never lost the money.
Theo Hicks: Solid advice. Alright, are you ready for the Best Ever Lightning Round?
Colin Douthit: Yeah, let’s go ahead.
Theo Hicks: Alright. First, a quick word from our sponsor.
Theo Hicks: Alright Colin, what is the best ever book you’ve recently read?
Colin Douthit: There’s two. Bible, number one. That’s a huge part of my life. And then number two, Atlas Shrugged, by Ayn Rand.
Theo Hicks: Nice. Is that where the Atlas Rentals comes from?
Colin Douthit: Yes, and a lot of my LLCs that own my properties have names from different characters in the books.
Theo Hicks: Is the movie as good as the book?
Colin Douthit: No.
Theo Hicks: Okay.
Colin Douthit: But you’ve gotta make it through the first 200 pages of the book before it gets good.
Theo Hicks: If your business were to collapse today, what would you do next?
Colin Douthit: I would start sourcing money from other investors, and I would probably start another service-based business like property management to get the income rolling in without having to outlay a bunch of capital.
Theo Hicks: What is the best ever deal you’ve ever done?
Colin Douthit: I bought a set of dilapidated duplexes out in the country near a college town, near [unintelligible [00:17:59].24] rehabbed them, I borrowed the down payment from somebody, like we were talking about, started the rehab process, did a refinance, repaid the down payment after I got the appraisal, which came back stellar, so now I own six duplexes for zero dollars.
Theo Hicks: Wow. What’s the best ever way you like to give back?
Colin Douthit: I like to donate my time and energy to the church here. I work with a lot of the [unintelligible [00:18:20].09] and we do community service projects.
Theo Hicks: And then lastly, what’s the best ever place to reach you?
Colin Douthit: Probably either find me personally on Facebook, or Atlas Property Management on Facebook, or shoot me an email.
Theo Hicks: Alright, Colin, solid information presented in this conversation. I really appreciate it and I enjoyed it. We hit on three major areas… One was using other people’s money, and you just mentioned it’s all about networking, and you in particular focus on friends and family. You said that specifically you offered them an interest-only – I think it was 8% – and you gave a personal guarantee, and you also do some principal payments as well on top of that, I’m assuming depending on how the deal performs. Then the exit strategy is to do the refinance at year five to pay them back in full.
Then you mentioned that you were able to rely on your track record to raise that capital. So you’re always talking about real estate. You’re telling them “Hey, look at this deal I did, look at this proforma”, and then eventually you say “Hey, if I find a deal that can pay you 8%, would you be interested?” So it’s presenting it like that, asking that question… If they say yes, then you can come back at a future date and present them with an actual deal. They’ve already said they’re interested, so they’re more likely to invest. Then you said that so far you’ve raised about $300,000 in capital.
Then we transitioned into talking about your general contracting business, and why you started your own – in particular, you had a hard time finding people to depend on, so we talked about some ways to make sure that you are finding someone you can depend on, like making sure they’re insured, make sure you get references, make sure that they’re actually comfortable with the scope of work, and make sure that they aren’t actually overqualified for what you’re doing… So don’t find a luxury residential homebuilder to do your D class renovation.
And then we also talked about your property management business and some things that you’ll want to look for when you’re hiring a property management company to make sure that they are doing what they’re supposed to do. Ask them for a list of properties that they currently have under management and drive by those properties, maybe ask for a few of the properties that are vacant, ask them how long units are typically vacant, how long it takes to turn them around and how long it takes to actually lease them, ask them the services they provide… Something that stood out was asking them how they handle maintenance, in particular the difference between how they handle maintenance 9 to 5, versus someone calling at one o’clock in the morning because their house is on fire, or whatever.
And then finally, your best ever advice, which was very succinct – you can’t lose money or make money a deal you never had. To me, that means you just gotta go out there and do it, do a deal. You can’t really fail if you’re not doing anything, but you also can’t make money if you’re not doing anything either, so I think that’s really solid advice and it’s applicable to all aspects of life.
Colin Douthit: Yeah, absolutely. You can get emotionally wrapped up in a deal that you lose, but at the end of the day you didn’t lose or gain anything, too.
Theo Hicks: Exactly. Alright, Colin, I appreciate it. Best Ever listeners who tuned it, I appreciate it as well. We will talk to you soon.
Colin Douthit: Alright, thank you so much.